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February 28, 2008
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Importance of Liquidity in Mortgage Market Basis of AFSA Testimony
AFSA Submits Letter to the Department of Defense
Credit Freeze Subject of AFSA Comment Letter to FTC
National Consumer Protection Week Supported by AFSAEF
Senate Considers Adding Mortgage Cram Down to Bankruptcy
GE Money May Seek Partners for Non-U.S. Units
Fed Amplifies Intentions on Consumer Protection
Visa IPO Could Be Largest in US History
Group Says Study Argues for Card Bill
Mastercard Says Interchange Fees Probed in Hungary
Paulson Dismisses Mortgage Rescue Plans
Bankruptcy Cram Downs Rolled Into Foreclosure Relief Bill
Mortgage Disclosure Bill Passes Next Hurdle
Fed's Mishkin Calls for Improved Economic Education and Financial Literacy
Plan Would Help Americans to Save Regularly
California Assemblyman Pushes for Financial Literacy
Reaching Out to Latinos
FTC Chairman Majoras to Resign
US Auto Finance Sector Faces Weaker Credit Quality and Funding Dislocations
The Dealer Made Me Do It!
The World Finally May Be Ready for Used-Car Leasing
Importance of Liquidity in Mortgage Market Basis of AFSA Testimony
AFSA President & CEO Chris Stinebert testified Feb. 28 before the House Subcommittee on Financial Services and General Government on consumer protection in financial services. His testimony emphasized that maintaining liquidity is crucial in today’s tightening credit market.
Stinebert expressed concern that Congressional mandates and policies restricting mortgage lending – such as H.R. 3609, The Emergency Homeownership and Mortgage Equity Protection Act – would severely limit market liquidity. “AFSA believes that a better course of action is to provide an open, and voluntary, pathway for borrowers and lenders to work together to keep people in their homes,” he testified. “The voluntary nature of these programs would ensure that efforts to restore liquidity will not be undermined.”
The subcommittee also heard testimony from Donna Gambrell, Director of the Treasury Department's Community Development Financial Institutions Fund; Lydia Parnes, Director of the Federal Trade Commission's Bureau of Consumer Protection; Michael Calhoun, President of the Center for Responsible Lending; Janet Murguia, President and CEO of the National Council of La Raza; and Greg Lobo Jost, Deputy Director of the University Neighborhood Housing Program/Neighborhood Economic Development Advocacy Project.
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AFSA Submits Letter to the Department of Defense
On Feb. 25, AFSA sent a letter to the Department of Defense regarding the John Warner National Defense Authorization Act for Fiscal Year 2007, which provided protections for service members and their dependents against predatory lending. The final rules were published on August 31, 2007. The National Defense Authorization Act for Fiscal Year 2008 requires the Department of Defense to submit a report to Armed Services Committees of the House and Senate. Earlier this month, the Department solicited comment from AFSA to assist the Department in writing that report.
After meeting with members of the Department, AFSA decided to focus its letter on specific topics Pentagon staff addressed in the meeting. AFSA emphasized the distinction between payday lenders and installment lenders, discussed the benefits of ancillary products, and asked that the Department refrain from regulating credit cards.
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Credit Freeze Subject of AFSA Comment Letter to FTC
On Feb. 25, AFSA submitted a comment letter to the Federal Trade Commission regarding the need for a federal credit freeze law. The letter provided several reasons why such a law is unnecessary and may fall short of expectations. Among these reasons is the fact that credit freezes already exist in all 50 states, as consumer reporting agencies have made them available at a low cost (or, in some cases, no cost) to all consumers.
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National Consumer Protection Week Supported by AFSAEF
March 2 through March 8 is National Consumer Protection Week (NCPW), which highlights consumer protection and education efforts around the country.
In recognition of NCPW, the AFSA Education Foundation encourages consumers to review the wealth of free financial literacy documents – on mortgage loans to vehicle financing to credit cards – available on the foundation Web site. Additionally, teachers who have registered for MoneySKILL® were informed of the benefits of NCPW and reminded about the resources available to them.
NCPW 2008's organizers encourage people from coast to coast to master the financial facts of life. It’s a sound investment: Financially savvy consumers are likely to make smarter decisions about managing their money, using credit wisely, and building a solid financial foundation for later.
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Senate Considers Adding Mortgage Cram Down to Bankruptcy
Returning from Presidents’ Day recess this week, the Senate will consider S. 2636, introduced by Senate Majority Leader Harry Reid (D-NV), which he has characterized as a “housing stimulus package.” While the legislation contains a number of provisions that AFSA could support, AFSA has actively lobbied against the bill since its introduction on Feb. 13 because it includes provisions that would give bankruptcy judges the ability to rewrite mortgage contracts on principal residences.
AFSA has joined with others in the Bankruptcy Coalition to educate Senators and their staff on the importance of protecting the integrity of mortgage contracts as a way of keeping mortgage finance affordable to all Americans.
Sen. Dick Durbin (D-IL), the principal author of the bill’s provisions, made last-minute changes to the legislation to limit the scope to subprime mortgages and non-traditional mortgages. However, AFSA, the financial services industry, and other members of the Bankruptcy Coalition continue to express opposition to the bill.
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GE Money May Seek Partners for Non-U.S. Units
Bloomberg (02/22/08) Moullakis, Joyce; Choudhury, Ambereen
General Electric is looking to reduce some of its risk by partnering or selling off some of its overseas consumer credit card, mortgage, and loan units. The company has met with banks in Australia and the United Kingdom to explore their interest, and if successful, is likely to do the same for its American operations. CEO Jeffrey Immelt is looking to move up to $50 billion to less risky, higher-return commercial finance businesses. The company has already announced the sale or partnership of GE Money Japan's consumer unit and is looking for partners for non-card units in India.
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Fed Amplifies Intentions on Consumer Protection
American Banker (02/28/08) Sloan, Steven
In the months since House Financial Services Committee Chairman Barney Frank, D-Mass., threatened to take away the central bank's rulemaking authority, Federal Reserve Chairman Ben Bernanke said it has been working on rules on unfair and deceptive lending practices that it plans to release this spring. Frank believes this is a step in the right direction, but Bernanke provided no information about which practices would be singled out. As for the release date, he said the central bank wants to issue the rules when final credit card disclosure practices are rolled out in order to minimize the burdens placed on the banking industry regarding implementation. Similar lending rules are under consideration by the Office of Thrift Supervision.
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Visa IPO Could Be Largest in US History
Associated Press (02/25/08) Read, Madlen
Visa announced Monday plans for an initial public offering (IPO) of up to $19 billion, which would make it the biggest IPO in U.S. history. The company is hoping that the stock offering will buoy the stock market, which has seen weak demand for IPOs of late, and help ease the current credit crunch, because the banks that issue Visa cards could get as much as $10 billion overall as a result of the IPO. The company will offer 406 million shares at $37 to $42 each, and underwriters will have the option to buy an additional 40.6 million shares. No official date has been announced for the IPO, but experts believe it will be priced on March 19. The company will likely want to make the offering before the Olympic games this summer, for which Visa is a sponsor. MasterCard raised $2.39 billion in its IPO two years ago, and its stock has risen fivefold since then, though it dipped 5.5 percent this month.
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Group Says Study Argues for Card Bill
American Banker (02/22/08) P. 36; Kaper, Stacy
A recent study by the Center for American Progress showed credit card debt grew four times as fast from April 2006 to December 2007--during which the subprime mortgage crisis unfolded--as it had in the preceding five years. In addition, the amount of card debt charged off skyrocketed 34.2 percent, while the number of credit card loans in default or 60 days delinquent rose to 7.6 percent from 6.4 percent a year earlier. The Center argues the study results show a need for Congress to better regulate the credit card industry.
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Mastercard Says Interchange Fees Probed in Hungary
Reuters (02/21/08) Herbst-Bayliss, Svea
The Hungarian Competition Authority has opened a probe into MasterCard's domestic interchange fees there. The fees have been the subject of an informal investigation since mid-2007, but Hungarian regulators decided to open an official case after their preliminary findings. The card company has recently come under tougher international scrutiny, noting in a regulatory filing with U.S. regulators that Mexico, Brazil, Colombia, South Africa, Portugal, Singapore, and Switzerland are all reviewing the fees and may move to regulate them. MasterCard disclosed the latest investigation in its filing with the U.S. Securities and Exchange Commission.
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Paulson Dismisses Mortgage Rescue Plans
Wall Street Journal (02/28/08) P. A1; Phillips, Michael M.; Ip, Greg
Treasury Secretary Henry Paulson believes proposals being considered by lawmakers to curtail foreclosures are tantamount to bailouts of lenders, investors, and speculators who engaged in risky deals, noting that they fail to help borrowers struggling to make their mortgage payments. According to Paulson, "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street." Paulson insists that the market-based approach supported by the Bush administration is sufficient, but House Financial Services Committee Chairman Barney Frank (D-Mass.) is among those lawmakers who believe the government needs to do more to ease the housing crisis. While lawmakers propose bills that would set aside billions of dollars to refinance distressed loans or help states and local governments purchase foreclosed properties, Paulson will continue pressuring mortgage servicers to work with subprime borrowers vulnerable to default if interest rates rise and extend such assistance to prime borrowers.
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Bankruptcy Cram Downs Rolled Into Foreclosure Relief Bill
Inman News (02/25/08) Carter, Matt
Senate Majority Leader Harry Reid (D-Nev.) has included a provision in the Foreclosure Prevention Act of 2008 that would permit bankruptcy judges to modify mortgages on primary residences. The legislation also would earmark $200 million for pre-foreclosure counseling and allow state housing finance authorities to issue $10 billion in mortgage revenue bonds to help struggling subprime borrowers and first-time buyers. Proponents of the bill believe loan servicers are not doing enough to prevent foreclosures, and they contend that up to 600,000 households would be helped by the bankruptcy provision.
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Mortgage Disclosure Bill Passes Next Hurdle
Columbian (WA) (02/22/08) Durbin, Kathie
In Washington state, the House Committee on Insurance, Financial Services and Consumer Protection this week unanimously passed Senate Bill 6728, which incorporates nearly two dozen of the recommendations of Gov. Chris Gregoire's Task Force for Homeowner Security. Most notably, it calls for the creation of a disclosure form that would spell out all costs associated with a mortgage loan and reveal whether it contains balloon payments, early payment penalties, or future adjustments to the interest rate. In addition to making it a crime for a mortgage broker or borrower to knowingly use deceptive practices to obtain home financing, the measure seeks to prohibit brokers and consumer loan companies from steering customers to mortgages they clearly are unable to afford. A measure that provides $1.5 million to promote financial literacy among home buyers has already been signed into law by Gregoire after passing both the House and Senate.
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Fed's Mishkin Calls for Improved Economic Education and Financial Literacy
ForexTV (02/27/08)
According to Federal Reserve Gov. Frederic Mishkin, better financial education and financial literacy will help consumers improve their purchasing decisions and be more effective voters. When speaking at the third National Summit on Economic and Financial Literacy, Mishkin said that the current economic slowdown is the result of a number of factors. He noted that if citizens had been better informed, much of the harm to the economy could have been avoided. In addition, he said better economic education by the public will push public leaders to remain better informed, leading to better policy-making decisions.
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Plan Would Help Americans to Save Regularly
Associated Press (02/24/08) Powell, Eileen Alt
To encourage Americans to put more money in savings accounts, a group of government agencies, companies, and nonprofits has declared this week "America Saves" week. The goal is to get Americans, who have saved less than 1 percent of their earnings in recent years, to automatically save money every month. Employers should make it easier for workers to automatically place funds in savings and retirement programs, banks should encourage automatic transfers from checking into savings accounts, and teachers should promote the benefits of automatic deposits and compound interest, according to the America Saves campaign. Experts say automatic saving is the secret to getting out of debt and having financial security, and suggest that people save the equivalent of one hour a day of income, or 12.5 percent of gross income for a full day.
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California Assemblyman Pushes for Financial Literacy
DSNews (02/22/2008) Thai, Nancy
California Assemblyman Ted Lieu (D-Torrance) has proposed a financial literacy bill. AB 2123 was launched in response to the increasing number of individuals making bad financial decisions. The legislation would mandate the State Controller form the Office of Financial Literacy Advocate and establish the California Financial Literacy program. In addition, it would permit the controller to obtain contributions from nonprofit groups to help finance these programs. AB 2123 would also establish programs to help out low- and middle-income residents with such things as credit card applications, opening bank accounts, and comprehending credit scores. The programs will be overseen by the Office of the State Controller and will be made accessible online or by phone. The legislation "will help empower California consumers by providing a one-stop shop for basic financial information on credit scores, credit card applications, bank account and interest rates, and how to avoid a financial crisis," notes state Controller John Chiang.
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Reaching Out to Latinos
Business and Economic Review (Quarter 1, 2008) Vol. 54, No. 2, P. 12; Collins, Jan
In Lancaster, S.C., the rise in Hispanic residents prompted Founders Federal Credit Union to modify its Hispanic strategy. For example, tellers and loan officers are fluent in both English and Spanish. All 21 of Founders' offices and its three service centers in the Carolinas have at least one bilingual staff member as well as bilingual forms. The marketing program, which was launched in 2005, includes a Spanish-language Web site and brochures, a 24-hour help line in Spanish, dual-language ATM machines, and Spanish-language newspaper ads. These materials stress such things as family, church, and soccer, and the availability of all of Founders' services such as checking and savings accounts, credit cards, loans, IRAs, and direct deposits. In addition, new Hispanic members are counseled on financial matters like establishing credit. They also have the opportunity to wire money to other countries at no cost over the Internet. All Founders employees take part in a bicultural training program and learn about financial terms in Spanish.
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FTC Chairman Majoras to Resign
Wall Street Journal (02/27/08) Wilke, John R.
Deborah Platt Majoras has announced she will resign from her position as chairman of the Federal Trade Commission (FTC) in March. The White House is expected to replace her with William Kovacic, a Republican who is currently one of the five commissioners. For her part, Majoras will soon be named vice president and general counsel at Proctor & Gamble. During Majoras' tenure as chairman, the agency tightened federal enforcement of data-security laws, forcing corporate boards to safeguard consumer data and imposing penalties for any lapses. It has also striven to reduce identity theft and cut down on advertisers marketing junk food to children. Under Majoras, the FTC has brought only a few antitrust lawsuits. However, the agency made a major break from the Bush administration by breaking rank and pursuing litigation against several major drug companies for allegedly attempting to shut down or buy off their generic competition. Some insiders are worried the FTC commissioners may be divided after Majoras' departure. However, many decisions have been unanimous in recent years, leading most to believe the risk of division is slim.
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US Auto Finance Sector Faces Weaker Credit Quality and Funding Dislocations
RiskCenter (02/25/08) Crowe, Meghan
The American auto finance sector will encounter substantial challenges this year, Fitch Ratings claims in a new report. A declining economy, increasing unemployment, geographic problems, residential mortgage troubles, decreasing used-car costs, and a highly leveraged shopper all negatively impacted the credit metrics of American auto lenders during 2007's second half. The same factors will cause additional quality declines this year, and recent problems in the bond insurance and capital markets increase the possibility that financing prices and liquidity challenges will be larger in 2008 than in 2007, Fitch states. Asset quality decline, steep financing costs, and volatile asset-backed securities market conditions could cause negative ratings for non-captive lenders this year, although the bigger lenders will benefit from substantial business-line diversity and strong deposit funding. Fitch thinks the U.S. auto captives have seen negative ratings in recent years because of falling demand, competition from overseas manufacturers, auto-supplier problems, and increasing pension obligations at parent companies. Fitch feels that captive asset quality and financing costs are an issue this year, although asset quality declines should be less negative than in non-captive portfolios. Fitch's report also offers a summary of the auto finance sector, including the relationship between lenders and auto dealerships.
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The Dealer Made Me Do It!
Ward's Dealer Business (02/01/2008) Finlay, Steve
Car dealers are often blamed for saddling consumers with excessive debt by selling them cars they can't afford, but consumers need to take responsibility for their actions as well. Some people with average income have been rolling over debt from one expensive car to another, and then accusing the dealers of failing to tell them they won't be able to sustain the debt load. This is childish behavior, writes Steve Finlay in Ward's Dealer Business, who says that while dealers do have a responsibility to help their customers buy cars they can afford, consumers need to use common sense and live within their means. Car buyers today are armed with plenty of information about cars thanks to Internet research, and they should also inform themselves about financing and the consequences of taking on too much debt. To aid this, the National Automobile Dealers Association has launched its Americans Well-Informed on Automobile Retailing Economics initiative to help educate consumers about vehicle financing.
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The World Finally May Be Ready for Used-Car Leasing
Ward's Dealer Business (02/01/2008) P. 76; Finlay, Steve
Jeff Cook, president of CyberCalc, believes pre-owed vehicle leasing may finally gain the traction that advocates anticipated about 10 years ago. "We believe that late-model pre-owned leasing is an unexplored frontier that can yield much higher gross profit, more value for the customer's dollar, and as much as 56 percent shorter trade cycles," says Cook. Leasing has made a comeback from its decline to 16 percent of all new-vehicle delivers in 2002, as consumers turned to buying vehicles at zero-percent financing. Leasing currently stands at about 25 percent of penetration. Leasing will always be a better option for a select number of vehicles because payments are dependent on the relationship between acquisition cost and residual value, and because wholesale values can change significantly while residuals remain constant for up to two months. "And with the average lease customer returning to the market in 33 months versus the average finance customer in 59 months, it just makes sense that dealers should look more closely at leasing," says Cook. D&M Leasing, a client of the provider of interactive lease-evaluation programs, sees pre-owned as having the greatest potential for growth in 2008.
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Abstract News © Copyright 2008 INFORMATION INC.
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AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. For more information,
please contact newsbriefs@afsamail.org.
AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The Association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis. The American Financial Services Association has provided services to its members for over ninety years. The Association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.
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